U.S. home prices continued to increase in August as the Case Shiller 20-city Home Price Index increased 0.9 percent to its highest level since September 2010. The 20-city index is up 2.0 percent in the last year. At 145.87, the index was down 12.9 percent from where it was just before the 2008 presidential election.

The index rose in 19 of the 20 cities, falling only in Seattle.

The 10-city index also rose 0.9 percent in August, increasing to 158.62, 1.3 percent ahead of August 2011 and the highest level since October 2010.

Economists had expected the 20-city index to be 2.0 ahead of August 2011.

The monthly gain in each index was slower than in July, when the 10-city index went up 1.5 percent and the 20-city index improved 1.6 percent. July also saw gains in all 20 index cities.

Four of the cities—Cleveland, Denver, Miami and Tampa—are located in “battleground” states. In all but one, Denver, the home price index remains below where it was in the last report before the 2008 election.

While the price index in Denver is up 0.6 percent in the last four years, it was down 29.2 percent in Tampa, 22.2 percent in Miami, and 7.3 percent in Cleveland.

The median price of an existing single family home dropped 1.5 percent in August, according to the National Association of Realtors, but was up 8.0 percent from August 2011. In July, the median price of an existing single family home was up 9.7 percent from one year earlier.

Home values play a significant role in the nation’s economy following the “wealth effect,” which holds that households spend more as perceived wealth increases. Increases in household net worth due to real estate (rather than stock) values have a greater impact on consumption, which is more than 70 percent of GDP.

The prices gains reported by Case-Shiller were led by a 2.3 percent gain in Detroit, a 1.8 percent increase in both Atlanta and Phoenix, 1.6 percent in Las Vegas, 1.3 percent in Los Angeles, 1.2 percent in Minneapolis, 1.1 percent in Washington, D.C., and 1.0 percent in both Cleveland and Miami. The year-over-year price improvement in Las Vegas was the first in that city—which had been a poster child for the housing boom—since December 2006.

Over the past several years, housing has either hurt or done little to help GDP, even though historically, housing tends to lead “macroeconomic expansion,” according to the report.

“However, now we’re seeing housing resuming its traditional role of leading the recovery charge and once again being the bright spot in the economy,” said Frank Nothaft, VP and chief economist for Freddie Mac.

Based on residential fixed investment (RFI) growth, which Freddie Mac explained is the component of GDP that includes expenditures on new housing construction, additions and alterations to the existing housing stock, and broker commissions on property sales, the tide appears to be turning for housing.

According to the report, RFI was a “net drag” on GDP growth during 2006-2010, and in 2011, it contributed less than one-tenth of a percentage point to GDP growth.

But, in the first half of this year, RFI added 0.3 percentage points to GDP growth of 1.7 percent. Freddie Mac expects to see to see this trend continue into the remainder of the year.

“With QE3 in motion we should see even more pick-up in housing activity thereby providing greater benefits to the overall economy and consumers looking to refinance or purchase a home,” Nothaft added.

With the Fed’s stimulus encouraging low mortgage rates, Freddie Mac expects the low-rate environment to continue into the next year, with the 30-year fixed-rate mortgage averaging around 3.5 percent.

Low rates also prompted the GSE to project 7 million borrowers who will refinance this year, leading to an aggregate of $15 billion in mortgage payment savings over the first 12 months after refinancing.

In addition, Freddie Mac anticipates volume for single-family originations will come close to $2 trillion, a 30 percent increase from last year. However, volume is expected to drop by 15 to 20 percent in 2013 if mortgage rates rise and HARP expires.

Nearly 99,000 homeowners refinanced their mortgages in August through the Home Affordable Refinance Program (HARP), according to a new report released by the Federal Housing Finance Agency (FHFA) Tuesday.

The federal government’s HARP initiative, which is applicable for borrowers with loans owned by Fannie Mae or Freddie Mac, has put 618,217 homeowners into new mortgages with lower interest rates since the beginning of this year, when a broader group of borrowers were made eligible for the program.

According to FHFA, HARP is on target to reach a million borrowers in 2012. The agency attributes the continued

high volume of HARP refinances to record-low mortgage rates and program enhancements that included the elimination of its maximum loan-to-value (LTV) ratio limit.

Fannie Mae and Freddie Mac loans refinanced through HARPaccounted for nearly one-quarter of all refinances in August, 24 percent to be exact. In states hard-hit by the housing downturn–-Nevada, Arizona, and Florida–-HARP refinances represented nearly half or more of total refis during the month.

HARP refinances for borrowers with LTV ratios greater than 105 percent accounted for more than 70 percent of HARP volume in Nevada, Arizona, and Florida and more than 60 percent of theHARP refinances in Idaho and California. Nationwide, LTVratios above 105 percent characterized more than half of newHARP loans made in August.

FHFA also noted in its report that nearly 18 percent of HARPrefinances for underwater borrowers were for shorter-term 15- and 20-year mortgages in August. By reducing their mortgage terms, these borrowers will be able to build equity faster.

Since the program’s inception in 2009, FHFA reports, Fannie Mae and Freddie Mac have financed more than 1.6 million loans through HARP.

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Refinancing activity reached a three-year high after shooting up 20% for the week ending Sept. 28, the Mortgage Bankers Associationsaid Wednesday.

The trade group’s refinance index grew along with the purchase index, which alone edged up 4%. Activity in both indexes created a 16.6% surge in total mortgage applications as more borrowers jumped into the market to obtain record low interest rates.

Rates continued to fall with the 30-year, fixed-rate mortgage with a conforming loan balance declining to 3.53% from 3.63% a week earlier. The average contract interest rate for the 30-year, FRM with a jumbo loan balance fell to 3.82% from 3.87%. In addition, the average 30-year backed by the FHA moved to 3.37% from 3.44%, while the 15-year, FRM fell to 2.90% from 2.98%.

“Refinance application volume jumped to the highest level in more than three years last week as each of the five mortgage rates in MBA’s survey dropped to new record lows in the survey,” said Mike Fratantoni, the MBA’s vice president of research and economics.

“Financial markets continue to adjust to QE3, as the ongoing presence of the Federal Reserve as a significant buyer of mortgage-backed securities applies downward pressure on rates. Although there was a slight decline in the HARP share of refinance activity, the level of HARP volume remains steady.”

Paul Diggle, property economist with Capital Economics, agrees with this sentiment on quantitative easing. “Mortgage interest rates have fallen further in response to the third round of quantitative easing,” Diggle said. “This translated into stronger demand for mortgages in the closing weeks of September, both from refinancers and prospective homebuyers.”